Banks planning to move staff out of London after Brexit face a stark reality: there isn’t much prime real estate up for grabs in rival cities.
With vacancy rates for prime space in the business districts of Paris, Frankfurt and Amsterdam at the lowest levels in a decade, there are only a handful of empty and appropriate office buildings in those cities capable of housing the thousands of employees that banks might need to relocate, according to data from property broker Savills . In Dublin, there are currently no buildings big enough.
“There is no obvious successor to London,” said Matthew Fitzgerald, Savills’s head of European tenant representations. “It could take several years to see a financial cluster of a similar scale.”
While the banks have so far waited to see what UK prime minister Theresa May’s negotiating plan will be, first movers may get an advantage on the limited stock of space. Bank executives are planning for the worst – an outcome where they lose the right to sell services freely around the European Union from London – and would want to have new or expanded offices set up elsewhere before the end of the two-year Brexit negotiation period.
The problem is particularly acute for Wall Street firms, who have a majority of their European employees in London. Eighty-seven per cent of US investment banks’ EU staff are located in the UK, which is also home to 78 per cent of the region’s capital markets activity, according to New Financial, a think tank.
Dispersing employees
Given the scarcity of supply, banks are considering dispersing employees across a number of different European cities, according to three people with knowledge of their contingency plans. Regus, the world’s largest provider of serviced offices, has already said it’s speeding up expansion plans in Frankfurt should banks need temporary solutions.
“We might see a gradual spread of roles around Europe, and these would likely be department moves of no more than 200 staff,” Fitzgerald said. In the days following the referendum, real-estate brokers say they were inundated with calls from panicked US investment banks asking about the availability of offices across the continent. Nobody has publicly signed a lease on new space yet, as executives weigh their options and wait to get a sense of what May’s government is hoping to achieve from Brexit talks.
Warnings
Last week, UBS chief executive Sergio Ermotti said the Swiss bank may have to move as many as 1,500 jobs from London to elsewhere in the region. Lloyd's of London chairman John Nelson said insurers would be forced to move part of their businesses to the EU if they failed to access the single market.
Before the June 23rd vote, JPMorgan Chase chief executive Jamie Dimon said he would relocate as many as 4,000 employees to the continent after Brexit. Morgan Stanley may move as many as 1,000 employees out of the UK, while Goldman Sachs and Citigroup indicated they would also shift people abroad.
European-based banks including HSBC and Deutsche Bank said they may have to move people or activities to France and Germany.
In Dublin, often touted as a likely destination for US investment banks given the common language and cultural ties, Big Tech has beaten Wall Street to spaces that were once vacant after Ireland’s debt crisis.
Airbnb and Twitter have added space in the city, helping to boost lease signings in Dublin by 25 per cent last year to a level last seen in 2007, according to Jones Lang.
La Defense
In the La Defense business district of Paris, there are eight office buildings that have contiguous space for 2,000 employees or more, the Savills data show. In Frankfurt, that number dwindles to five.
While there is no such office space currently available in Dublin, there is one building under construction that is scheduled to be finished within two years.
If a bank wanted to move all of its staff and headquarters out of the UK tomorrow, then the options would narrow further. In the major financial hubs of Europe, only Paris and Frankfurt currently have an office complex big enough to accommodate 5,000 people or more, Savills says. Dublin, Madrid and Amsterdam have one development each in the the pipeline that could house that many people, but those projects are not scheduled for completion for at least 18 months.
Long leases
A tenant would have to commit to a 10-year lease to secure any of these offices; if a bank commissioned its own building, it could take up to four years to be built.
The prospect of a lengthy wait for new space is part of the reason bank executives are lobbying May and other European leaders to strike an interim agreement that would guarantee a lengthy period of transition from the current rules to whatever fresh terms of trade result from Brexit. – (Bloomberg)
